Thoughts on business school, economics, NC State, and everyday life from an economist at NC State's business school

Wednesday, September 30, 2009

How the tax code fuels health cost escalation

Great article in NYT by David Leonhardt today on how the tax subsidy for employer-provided health care leads us to purchase more health care services than we would if we were spending our own money. Leonhardt explains the impact very well and cites solid empirical research that shows that we should expect the following if we removed some or all of the subsidy: (1) workers would choose less expensive plans (i.e., higher deductibles and copays); (2) companies would scale back the cost of the most generous plans; and (3) workers would have more take home pay.

2 comments:

The empirical research would be valid if the playing field were not changing so dramatically in such a short period of time. The effect of the lean times is profound. The problem is many smaller companies cannot afford to insure their employees at all. They are dropping coverages, and in many places are becoming high deductible plans. The rectified NC State Health Plan is a good example. As a result, hospitals in the area are hurting as more patients shift from insured plans to uninsured plans. WakeMed in Raleigh shed 80 employees (most of whom were at a director level and above) as a result of the changes to the NC Medicaid and the growth of the uninsured. UNC Health Care's cost of uninsured care will hit $300M. We are dealing with problem that is less like a Rubik's Cube and more like a Buckminster Ball, where each facet is constantly changing.

Subscribe To

Followers

About Me

Steve Allen is Associate Dean for Graduate Programs and Research in the College of Management at NC State University. He has appointments in the Department of Economics as well as the Department of Management, Innovation, and Entrepreneurship. Steve also is a Research Associate of the National Bureau of Economic Research, a non-profit research organization located in Cambridge, Mass.